The following information has been taken from the accounts of O’Connell Ltd for the year ended 31/12/2020: Trading and Profit and Loss Account for the year ended 31/12/2020 Credit sales € 850,000 Less: Cost of sales Stock 01/01/2020 € 128,000 Add: credit purchases ????? Less: stock 31/12/2020 € 80,000 Cost of sales € 433,000 Gross profit € 417,000 Less: Total expenses (including interest) € 260,000 Net profit for year € 157,000 Balance Sheet as at 31/12/2020 € € Fixed Assets Cost 880,000 Depreciation 40,000 NBV 840,000 Current Assets (including trade debtors €75,000) 250,000 Less: Creditors: amounts falling due within 1 year Trade creditors • 93,000 157,000 Financed by: Creditors: amounts falling due after more than 1 year 6% Debentures (2026/2027) € 300,000 Capital and Reserves Authorised 900,000 Issued 540,000 Ordinary shares at €1 each Profit and loss account 157,000 997,000 (a) You are required to calculate: (to 2 decimal places where appropriate) - Leaving Cert Accounting - Question 5 - 2021

Return on Capital Employed (ROCE) can be calculated using the formula:

First, we find Capital Employed:

$ext{Capital Employed} = ext{Total Assets} - ext{Current Liabilities} = 997,000$

Now, substituting values into the ROCE formula:

Calculate the period of credit given to debtors using:

Substituting:

Debtors = €75,000 and Credit Sales = €850,000,

ext{Period of Credit} = rac{365 imes 75,000}{850,000} = 32.21 ext{ days}

Calculate the percentage mark-up on cost using the following formula:

Substituting values:

Trade creditors are suppliers from whom goods are purchased on credit. The amount owed to trade creditors in this case is €93,000, which reflects the obligations to pay for goods received but not yet paid for.

Depreciation accounts for the wear and tear of fixed assets. It reduces the asset's value over time. In the accounts, O’Connell Ltd has recorded a depreciation of €40,000 for fixed assets, which will affect net profit.

Tangible assets are physical assets that can be measured and quantified. O’Connell Ltd has tangible assets worth €840,000, which is primarily its fixed property. These are essential for operational capacity.

Capital employed refers to the total funds invested in the business, factoring out current liabilities. In this case, it amounts to €997,000 and is critical for assessing the company’s operational scale.

The acid test ratio is calculated with the formula:

Substituting in the values: Current Assets = €250,000, Stock = €80,000, Current Liabilities = €157,000

The acid test ratio of 1.08 indicates that O’Connell Ltd has sufficient liquid assets to cover its current liabilities. This is above the ideal ratio of 1, suggesting good short-term financial health.

O’Connell Ltd's return on capital employed in 2020 is approximately 15.77%. This is an improvement from 12% in 2019, indicating a positive trend in profitability. Such growth reflects enhanced operational efficiency and profitability improvement.